The rate of the British currency against the US dollar reached its highest values since May, rising to $1.28 amid reports that the United Kingdom and the European Union are close to agreeing on Brexit.
"The pound is being bought again. EU spokesman Michel Barnier said something encouraging about the agreement, and Dutch Foreign Minister Stef Blok agreed that the UK needed to improve its proposal. Meanwhile, difficulties may arise with the passage of the "agreement in general terms", which now seems to be quickly worked out, through the British parliament, especially before the Brexit deadline of October 31. Will Boris Johnson agreed to a postponement to work out the details, or if the House of Commons votes against his plan, will he try to push the exit without a deal and blamed parliament? Too many questions, however, may be the threat of guilty blame will make parliamentarians vote for? The market seems confident that the deal is agreeing," Saxo Bank strategists said.
According to experts, the current week is critical for the British currency, which may result in increased volatility both in the direction of decline and growth.
Today, B. Johnson's proposals on Brexit will be finalized before the upcoming summit of European leaders. An important test for them could be a meeting between French President Emmanuel Macron and German Chancellor Angela Merkel, whose comments could stall or give further momentum to the discussion.
On October 17-18, at the EU summit, the Brexit theme is likely to overshadow all other issues. On the agenda is whether the alliance will approve UK proposals. The hints and comments of officials long before the final press conference can cause a stormy reaction of the market.
Even if London proposals for Brexit are approved in Brussels, they must also be approved by the British Parliament. B. Johnson hopes that this will happen at an emergency meeting of the House of Commons on Saturday. Even though before that, market participants had a rather positive reaction to the postponement of the release of Misty Albion from the EU, the conclusion of the transaction at this stage will drastically reduce uncertainty and can increase purchases of the British currency. In this case, the pound could potentially return to the area above $1.32, where it has been declining since March.
Without the approval of the deal from the EU, B. Johnson will need to make an official request to Brussels with a request for another three-month delay of Brexit. This will return uncertainty to the market, which will be negatively perceived by investors, and the initial reaction may be a sell-off of the British currency. In this case, the chances will grow that during the new delay, opponents of Brexit can put forward an amendment to the law, which will provide for putting the deal with the EU to a public vote. Another extreme scenario for the pound is the appointment of an early parliamentary general election.
Also, there is still a possibility that the UK could leave the EU on October 31 without a final deal. According to analysts, this scenario could become a "black swan" for British markets, similar to the unexpected outcome of the Brexit referendum in 2016. In this case, the GBP/USD pair will very quickly fall below 1.20.
